Siemens To Buy Malvern Company Shared Medical Systems Has Accepted A Buyout Offer Of $73 Per Share From The German Conglomerate.

Posted: May 02, 2000

Shared Medical Systems Inc. of Malvern, the troubled health-care information-services firm that fended off a hostile overture from a competitor earlier this year, has accepted a buyout offer from German conglomerate Siemens AG, the companies said yesterday.

Siemens would pay $73 a share in cash for SMS common stock, a total of $2.1 billion.

That would be a 76 percent premium to SMS's closing share price of $41.44 on Friday.

SMS's stock responded to the news by soaring $29.06 to $70.50 in trading yesterday. Germany's stock market was closed yesterday for the May Day labor holiday.

The SMS board, which had rejected an unsolicited $67 per share offer from Eclipsys Corp. of Delray, Fla., in March, approved the buyout deal Sunday night. It is expected to be closed by late June.

"The whole thing moved quickly," Marvin S. Cadwell, SMS's president and chief executive officer, said in an interview yesterday. The buyout agreement was disclosed with SMS's first-quarter earnings report, which showed that revenue and profit had fallen sharply.

Cadwell said he did not "at this point" see deep cutbacks in employment or SMS operations, though he said there would be some "rationalization" - business-speak for cost-cutting.

SMS employs 7,600 worldwide and 3,850 in Chester County, clustered off Route 202 in the Great Valley Corporate Center.

Cadwell said that employees should be comforted by the fact that for the next several months there would be no change in the company's direction as SMS and Siemens officials decide how to proceed.

"There will be changes," Cadwell said. "But there would have been changes if Shared Medical stayed an independent company."

SMS has said that the disruption on corporate software spending related to the Y2K scare squeezed revenue and earnings in the first quarter.

A changing industry

But analysts and company officials say the company also is suffering from structural shifts in the health-care industry, which is adjusting to lower reimbursements from the federal government, and confusion about what role the Internet will play in health-care information services.

SMS provides the software and the expertise that enables computers in many different health-care settings, from hospitals to nursing homes, to communicate patient and financial data.

In addition, Congress has tightened security of patients' health-care information, and this is likely to make it more difficult for information-technology providers.

"I've been covering this industry for six years and this is as bad as it's been," Raymond Falci, an analyst with Bear Stearns, said yesterday. He said SMS could have survived as an independent corporation, but it would have had to have ridden the cycles of the health-care information industry. "It's probably better for them to insulate themselves," he said.

Falci said that $73 a share was a "fair price," though it was "hard to tell" whether another bidder would emerge. "It wouldn't surprise me, but I wouldn't hold my breath," he said.

A logical match

Officials at Siemens and SMS said they believed that SMS' information services and Siemens' medical-equipment business, which manufactures items ranging from hearing aids to CAT scanners, would complement each other by improving care and cutting costs. It also would give Siemens a package of manufactured goods and information services to sell to health-care clients.

Although Siemens has several business units in the United States, including its medical equipment subsidiary in Iselin, N.J., Cadwell would report to Erich R. Reinhardt, president of Siemens AG's medical engineering group, in Erlangen, Germany.

Reinhardt said he was excited about purchasing SMS, one of the largest providers of computer services to hospitals in the United States.

"We see a lot of growth potential, not only in the United States, but globally," Reinhardt said. He said hospitals and other health-care providers were looking for a package of goods and services to buy, and not to deal with individual companies. With SMS, Siemens would have that package.

Reinhardt said information technology was growing faster than traditional medical products, which made SMS an attractive buyout candidate.

R. James Macaleer, a Chester County resident who helped found SMS in 1969, remains chairman of the board.

His stake in the company, based on Siemens' offer, would be worth $69.9 million. He could not be reached for comment.

Bob Fernandez's e-mail address is bob.fernandez@phillynews.com

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